Energy efficiency

These criteria refer specifically to energy efficiency and renewable energy projects. For underlying EBRD criteria, applicable to all EBRD projects, visit ebrd.com's central Apply for financing area.

Financing criteria for energy efficiency and renewable energy projects

Extensive due diligence, such as financial viability, may be required before a number of these criteria can be deemed to be fulfilled. Most of these criteria are not pass/fail type, and early consultation with the Bank will clarify doubts.

1. Project must fall within certain sectors/segments, primarily:

• District heating (DH) rehabilitation
• Public sector (schools, hospitals, etc.)
• Energy Service Companies (ESCOs)
• Power sector (Retrofitting plants, reduction of transmission/distribution losses, etc).
• Electricity and heat metering
• Industry (process, inside the fence cogeneration, outsourcing; etc)
• Waste-to-energy
• Renewable Energy Sources (RES)

For more detailed information about sector/segments, read the Energy Operations Policy.

2. Project must be technically feasible, make economic sense and be the least-cost solution

Technology must be well proven, can be physically implemented, and is well adapted to the region/country. The Financial Internal Rate of Return of the project - with savings valued at current prices or future prices if these can be reasonably predicted - should be in excess of 10% over the life of the project.

The project should be the least-cost solution, that is the most cost-effective option for the end-consumers based on a comparison of long-run costs at user level for different, feasible and competitive heating sources. This analysis should be part of the feasibility study which should also:

• Identify and evaluate project's main components: location, volume, foreign and local cost.
• Calculate the expected savings from each component.
• Assess the duration of implementation of each component. Physical implementation period should not be longer than four years for the entire project.
• Provide all inputs needed for the financial analysis: amortization and replacement of assets, operating and maintenance costs, changes in company structure/ownership, forecasted energy prices, etc.

In most cases, feasibility studies will be carried out by foreign consultants. However, the EBRD can accept studies performed by local consultants if their capability and experience meet EBRD standards. In some circumstances, the EBRD can mobilise Technical Cooperation grants to fund the feasibility study and related studies.

3. Project must be financially viable

• The EBRD finances projects whose projected cash flow will be sufficient at all times to service the EBRD loan and other debt.
• In certain circumstances revenues can include subsidies paid by a public entity to the project company. While the EBRD's policy is that energy utility tariffs should be set at cost-recovery levels, operating subsidies to an energy supplier are permissible if they are transparent, temporary, necessary from an affordability point of view, and provide the right incentives. This is especially pertinent for district heating projects in some countries.
• All key risks must be identified and the project should be robust to changes in key assumptions for quantifiable risks such as foreign exchange and energy prices, as shown by a Sensitivity Analysis. Alternalively, it should be possible to mitigate risks, for example through a completion guarantee or manufacturer's warranty.
• Loans are provided to public or private creditworthy entities.
• Loans can also be provided to limited recourse projects if the sponsor bears a significant share of the risk, through equity or partial recourse - for example a technical guarantee of an ESCO - to the lender. A limited recourse project refers to a special purpose company established to implement the project with no or little financial support from the parent company.
• For projects whose cash-flow primarily relies on an off-take agreement, the creditworthiness of the off-taker and validity and enforceability of the contract will be ascertained.
• For DH only, tariffs must remain affordable or a social safety net will be set up to protect lower income groups. The Affordability Ratio - the total heat bill/average household income in city, region or country - varies between countries. For heat, it should normally not exceed 8%.